Davos Myths: Myth 1: The poor are getting richer

Inequality
doesn’t matter: the poor are getting richer. This is the fantasy the elite at Davos want us to
believe. In reality, while
executive pay soars, there are more people living in
extreme poverty in sub-Saharan Africa than ever before. The first in a series of Davos Myths.

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by Global Justice NowA full series of interactive infographics related to the seven myths can be found here

Since the 1980s, we’ve been told that inequality doesn’t matter.
Mainstream thinking has it that you can fight poverty without
tackling inequality. This has been part of an attempt to make poverty
eradication easier and more palatable to an increasingly dominant
right-wing agenda.

The
beauty of separating poverty and inequality is that you can care
about ‘the poor’ while not worrying about the need for any of the
radical changes which might upset your lifestyle. You can both be
“intensely relaxed about people getting filthy rich”, as Peter
Mandelson said, and also care about very poor people getting less
poor.

This
embracing of inequality has, unsurprisingly, gone hand-in-hand with
soaring levels of it. Today the richest
80 people own almost
as much wealth as half the world’s population. The situation
continues to get worse. While most ordinary people endure pay freezes
and austerity, the world’s richest 300 people became richer by 16
per cent in 2013 .

Those
who are unhappy with inequality are accused of pursuing the ‘politics
of envy’, or as Margaret Thatcher once put it, of preferring that
the poor were poorer provided the rich were less rich. There are two
big problems with this argument.

Inequality
matters

The
first is that inequality does matter. This is not a matter of serious
debate. Even the International Monetary Fund (IMF), hardly a
progressive voice, has issued a warning that rising inequality is
threatening economic
growth.

This is
firstly because rich people are far more likely to spend money in
ways that do not benefit the majority of people, such as on luxury
imported goods or simply stashing it away in an account in the Cayman
Islands. The idea that if you get enough tycoons buying yachts, the
jobs created by the yacht building industry will be enough to feed
everyone else is a fiction.

Second,
inequality warps democracy. It raises the voices and interests of
tiny elites above the rest of society. This can lead to perverse
results and greater corruption, with laws and policies tailored to
the personal interests of tycoons and to the detriment of wider
society.

It’s
not just the economy that is affected by inequality. Most of the
attributes of a decent society – health, education, crime levels,
social cohesion – are most present in more equal societies.

“No
country has successfully developed beyond middle-income status while
retaining a very high level of inequality in income or consumption”
– World
Bank research paper

Take the
USA and Sweden, two countries with similar levels of wealth in GDP
per capita terms. The infant mortality rate in the USA is more than
double that of Sweden and the murder rate is over three
times Sweden’s
figure.

This
pattern holds up across the world. The charts below show that, in
general, countries with high levels of inequality have higher murder
rates and
lower life
expectancy.

The poor
are not getting richer

It’s
no wonder that we find that since the big surge in free market,
neoliberal economic policies in the 1980s, while the rich have
certainly got richer, the poor have, by and large, stayed poor.

Back in
1981, when the free market revolution was just taking off, there were
288 million people in sub-Saharan Africa living on less than $2 a day
(205 million were living on under $1.25 a day). By 2008, this
figure had almost doubled to
562 million (386 million on under $1.25 a day). Of course the
region’s population has also increased over this period, but even
proportionally, there has been almost no improvement in poverty rates
in sub-Saharan Africa since 1981.

Other
continents have done a little better but mostly because of the
arbitrary measures chosen. Why $1.25? Much anti-poverty work has been
geared to getting people from just below, to just above the
international poverty line. It has been claimed that if you changed
the poverty line from $1.25 to $1.27, most recent poverty reduction
gains would be wiped out.

In fact
the vast majority of the fall in global poverty since 1981 has come
from China, a country that, despite engaging in its very own
state-led form of capitalism, has not followed World Bank-led free
market policies.

Inequality
in the UK

Here
in the UK, real
wages have fallen since
the economic crisis in 2008. But in those same terms, wages
hardly rose in the boom years of
the 1990s and 2000s either. Almost all of the proceeds of this boom
went to a tiny elite. The big winners from this decline in
income have been the credit card companies. Consumer debt has tripled
over the last two decades as people borrow in order to make ends
meet, reaching £158 billion in 2013. Meanwhile, the proportion
of UK income controlled by the top one per cent of the population has
doubled since 1970 and the top one per cent own as much as the bottom
55 per cent. The big winners from this decline in income have
been the credit card companies. Consumer debt has tripled over the
last two decades as people borrow in order to make ends
meet, reaching
£158 billion in 2013. Meanwhile,
the proportion of UK income controlled by the top one per cent of the
population has doubled
since 1970 and
the top one per cent own
as much as
the bottom 55 per cent.

The
injustice of inequality

Inequality
isn’t good for getting people out of poverty, which shouldn’t be
surprising. Poverty isn’t about having a certain amount of money,
but the lack of those resources we all need for a decent life; food
and water, housing and energy, healthcare, education and decent
employment.

Poverty
is lack of power. And that lack of power is a direct consequence of
others having too much power – ultimately too much control over
resources. Wealth comes from exploitation of people and the planet’s
resources.

This is
why even well-intentioned plans to make the poor richer are doomed to
failure if they ignore the question of power. Helping the poor to buy
more products or rent more resources from the rich might provide
short-term relief, but in the long-term will reinforce the unequal
relationship between the two. Just as nineteenth-century American
slave owners who decided to treat their slaves better missed the real
injustice that they were perpetrating.

The
poor will only get richer by radically reducing inequality, which in
turn requires confronting power.